One 'Ring' penalty to rule them all


It's not quite a battle for Middle Earth, but the war between director Peter Jackson and New Line Cinema over profits from "Lord of the Rings" is quickly approaching epic status. The latest plot twist in the 21⁄2-year saga (just a tad longer than the actual trilogy) is a rare $125,000 sanction against the studio for failing to turn over potential evidence Jackson says could help prove that accounting tricks cheated him out of tens of millions in profits.

The 40-page, strongly worded ruling by U.S. Magistrate Stephen Hillman says New Line may have destroyed key documents and was "haphazard" in its efforts to track down files and e-mails requested for more than a year by Jackson. Its "repeated and unequivocal certifications" that it complied with orders to turn over documents "have been seriously misleading and obfuscatory," the Sept. 18 order states.

For a complex entertainment case, where lawyer gamesmanship over access to documents and witnesses is fairly common, Hillman's language and the amount of the penalty are striking. "It's almost unheard of," says litigator Neville Johnson, who frequently tangles with studios. "You rarely see sanctions, and you certainly don't see sanctions that high."

The penalty will hardly break New Line's bank, but it's a setback for the studio and its lawyers at the O'Melveny & Myers firm. In addition to angering the magistrate in a closely watched case worth millions to the recently struggling mini-major, the studio was given a tight deadline of Tuesday to turn over the requested materials and hire an outside retrieval service to scan its electronic files for relevant documents and e-mails, a labor-intensive job that could cost as much as $1 million. (A New Line spokesperson declined to comment on the litigation. Its lawyers didn't return calls but filed papers this week saying their client believes it acted in good faith but won't appeal the sanctions award.)

From the start of this case, Jackson and his team have been an unusually prickly thorn in New Line's side. They're an aggressive, well-financed fellowship that includes manager Ken Kamins, transaction lawyer Peter Nelson and a litigation team headed by Steve Marenberg at Irell & Manella.

Ironically, Marenberg is usually on the other side of studio accounting cases for clients like NBC and Disney. The latter is familiar with tough sanctions in entertainment cases. Just last week a California court upheld Disney's win in the long-running Winnie the Pooh profits case, dismissed in 2004 as a sanction against the Slesinger family after the trial court found its investigator broke into Disney property and stole documents from the garbage. New Line's conduct as described by Hillman certainly doesn't rise to that level, but Marenberg says he "intends to monitor compliance with the order to make sure we get the internal documents we're entitled to."

Hanging over the dispute like fog on the Shire is a planned film version of "The Hobbit," which New Line and millions of movie fans (myself included) would love to see Jackson direct. If the sanction shifts momentum in the case, it could help facilitate a settlement (relations between the parties are rumored to have warmed recently). However, the stakes are so high and both sides have already spent millions litigating the case, so the January trial date still seems likely.

And let's not forget that this lawsuit concerns only the first "Rings" film. The two sides have barely begun to fight over Jackson's similar claims on the other two blockbusters, meaning that the dispute, like the ending sequence in "Return of the King," could keep going and going.